Tie up with 7-Eleven to strengthen Future Retail's small format store chains

With this tie up, some existing convenience stores of Future Retail may be rebranded as 7-Eleven.

Future Group's tie-up with convenience chain 7-Eleven in India will bank on the synergy, including cross selling, with its other small format store chains, including Heritage Fresh and Easyday.

"The Indian retail turf is one of the most complex in the world due to differences in regional choices, eating habits and needs. For a globaly icon like 7-eleven, the Future Group partnership will give a quick and easy understanding of the Indian consumer mindsets and preferences. For Future Group, which has been having its share of troubles with retail having spread itself too thin in many categories, this partnership will help it reach the hyper-local neighbourhood giving access to many more consumers. Most importantly, the new consolidated focus of Future on convenience, food and grocery will be sharpened through this partnership also," said N Chandramouli, Chief Executive Officer, TRA Research, a data insights company.

DEAL CONTOURS

Kishore Biyani's Future Retail, on February 28, signed a master-franchise to open 7-Eleven convenience stores in India. This will mark the latter's entry into the country.

The first 7-Eleven convenience store in India is expected to open in 2019.

Products to be sold at these outlets would cover categories such as fresh food, snacks, beverages, confectionery and cigarettes.

This deal is in line with Future Retail's small store strategy to capitalise on the growth opportunities that small and convenience stores offer. Currently, Future Retail operates around 1,050 small-format stores in 312 Indian cities, spanning 2.3 million square feet.

7-Eleven stores are likely to be well-integrated with Future Retail’s convenience outlets since both pertain to the same format. Analysts said some of the existing convenience stores of Future Retail may be rebranded as 7-Eleven.

The products sold in 7-Eleven outlets globally are private labels, which fetch good margins. This could have a positive rub-off on Future Retail's operating margins in the long-run.

Future Retail has a better understanding of the Indian retail scenario in terms of behavioural patterns of buyers, markets and emerging trends, among others. 7-Eleven can rely on these insights and data to plan its expansion in India better.

Cross-selling opportunities at existing ‘Big Bazaar’ and ‘Easyday’ outlets may increase significantly. Consumers may have access to 7-Eleven ‘shop-in-shops’ within these stores.

For instance, if a customer enters a Big Bazaar outlet to shop for groceries/apparel/lifestyle products, he may consider entering a 7-Eleven 'shop-in-shop', which would typically be a shop or counter within Big Bazaar.

WHAT IS 7-ELEVEN?

7-Eleven is an internationally renowned convenience store chain, which commenced operations in the US in 1927. Its network covers 66,000 stores in 17 countries.

Globally, 7-Eleven is believed to be a go-to convenience store for food, snacks, hot and cold beverages and ready-to-eat fresh foods.

Many of the stores are open 24 hours a day, though the brand takes its name from the operating hours that they usually had: 7 am to 11 pm.

7-Eleven’s product portfolio includes premium brands, which would be different from Future Retail’s portfolio (primarily comprising economy brands).

WHY SMALL-STORE NETWORK?

Kishore Biyani's long-term objective entails increasing the small-store count from 1,000 at present to over 10,000 in the next 4-5 years. The move would, therefore, be pivotal in this regard.

Additionally, his plan is to expand the reach of convenience stores to the remotest areas of India in due course, besides increasing the customer loyalty base as well.

Mom-and-pop stores are spread across the country. This presents a huge opportunity to not only capture a higher market share but also achieve economies of scale.

While new convenience stores would trigger revenue growth, benefits of large-scale sourcing, distribution and sales should help margins expand.

This, in turn, would be important for Future Retail's financials as a whole. This is because Biyani expects revenue contribution from small and convenience stores (to overall sales) to increase from 15 percent in 9M FY19 to 25-30 percent in 5 years.

For 7-Eleven, foray into a fast growing economy like India which has a large population base will offer adequate revenue visibility.